Flat Close Leaves Markets Without Clarity or Direction | October 23, 2016

State of the Stock Market Analysis for the Week Ending October 23, 2016 (Flat Close Leaves Markets Without Clarity or Direction 10-23-16)

It was one of those weeks where we thought that we would finally get some clarity and direction, but that was not to be the case. The general mood was that having the final of three U.S. Presidential debates over with would allow investors get back to business, but that was not to be the case either. Friday’s essentially flat close with the Nasdaq slightly higher and the Dow and S&P 500 slightly lower left investors calm and cool, but it also left them looking for more news. It was not a bad week, though, as the Dow ended flat for the week, while the Nasdaq posted a weekly gain of 0.8% and the S&P 500 notched a modest 0.4% gain for what was an indecisive week for investors.

The good news came from none other than Microsoft (MSFT), which after a 16-year drought, finally regained its old, all-time high that it hit on December 30, 1999. Now THAT is a story for the philosophy of “buy and hold.” It also shows how wildly overvalued Microsoft was back in the late-1990s tech boom. Many of those tech players and “dot.coms” are long gone, but Microsoft has continued to grow. Its “cloud” initiatives today make MSFT seem as vibrant as it ever was in the 1990s tech bubble. And 16 years later, Mr. Softie seems to be back on track, and as opposed to its early “growth” days, it has an impressive 2.7% dividend yield to boot.

Weak revenues at Dow component General Electric (GE) weighed a bit on investor optimism on Friday, but then again, strong earnings at McDonalds (MCD) were a welcomed plus. It is always fun to digest Dow component companies’ numbers, but with the flat market we saw on Friday, investors are obviously in a “show me” mode when it comes to earnings season. The trouble with this particular earnings season is that so many estimates have been lowered, that it makes for “good news” when companies merely “beat” estimates. Many strategists continue to say we are in a six-quarter “earnings recession,” but the jury is still out on this season.

Most of the big banks and financials have topped estimates, and that is a plus, but the broader earnings picture is still mixed. It remains enough of a “mixed picture” that the stock market is just not able to get the upside traction that it is looking for as we head toward November. Likewise, the economic news we continue to see is good, but really not all that great. Weekly jobless claims edged up this week, but at the same time we saw a strong existing home sales number for September. First-time buyers are stepping in, which is another plus, but at the same time, we still get other lackluster economic reports. There is just no clear picture regarding the economy, and that is likely why the stock market remains tentative.

Investors know that the Federal Reserve has been “channeling” that it wants to raise interest rates in December, but the Fed seems somewhat divided on this debate. The hawks and the doves in the Fed keep sending mixed messages, and it is Janet Yellen’s challenge right now to reign in this division among the Fed Heads. We get hawkish comments one day, but then we get dovish comments the next day. Markets and investors are not sure what to make of this “push and pull” toward interest-rate policy. The Fed is laying very low right now ahead of the Presidential election, but we all know that the December decision on rates will be back in the spotlight once the Presidential deal runs its course.

As for the election, it looks as though Clinton has the momentum right now, but who knows? It has been a historically strange process, and in some ways, all bets are off, regardless of your party preference. It has been reassuring to see the stock market still holding up well near all-time highs. It speaks well for the resiliency of our financial markets, despite whatever the political world throws their way. The election is on November 8th, and in some ways, a “relief rally” seems like a possible scenario that could unfold once America and financial markets can stop worrying about a Presidential election that has divided our great country in ways no one could have ever imagined.

The good news is that we are almost through October with no sign of a meltdown in stocks. Halloween is right around the corner, and getting through Halloween without a market meltdown is a big, positive sign for where be headed into the end of the year! (That means a year-end rally!) The Gorilla wishes each and all a relaxing autumn weekend. There is a lot of baseball and football this weekend to distract us from raking leaves. No comment on the Cubs-Dodgers playoff, but keep in mind that the Cubs have not won a World Series since 1908. It should be a good game from Wrigley tomorrow night (or Sunday night if it goes to game 7), so enjoy. Best of weekends to all!